Partnership Finance October 2010

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Partnership Finance October 2010

  1. 1. Partnership Finance Chris Cook Lockerbie 5 October 2010
  2. 2. There are two conventional ways of raising finance: credit and investment 16/06/10
  3. 3. Investment is either through a Limited Company 16/06/10
  4. 4. A 19 th Century legal dinosaur 16/06/10
  5. 5. Or loans secured by legal claims eg mortgages 16/06/10
  6. 6. Two conflicting claims over the same assets 16/06/10
  7. 7. But there’s a new creature out there 16/06/10
  8. 8. The 21 st Century Limited Liability Partnership (LLP) 16/06/10
  9. 9. An LLP is a corporate body with limited liability 16/06/10
  10. 10. ...and...errrr...that’s it! 16/06/10
  11. 11. As far as the Tax Man is concerned it is a Partnership 16/06/10
  12. 12. It’s an 'Open' Corporate where we can work with each other 16/06/10
  13. 13. Even without a written agreement 16/06/10
  14. 14. LLPs are now in pervasive use for purposes never intended... 09/03/10
  15. 15. ...even in the Public Sector, where Glasgow has five municipal LLPs 09/03/10
  16. 16. Hilton Deal 2002 Capital Partnership LLP 10 UK Hotels Gross Revenues Hilton Group Capital User Consortium LLP Capital Provider Bank Property Developer Hotel Specialist % % % % %
  17. 17. Capital Partnership Custodian Investors Users % % £ 16/06/10 Managers
  18. 18. Equity Shares - % age shares in revenues or production... 16/06/10
  19. 19. Units - redeemable in production 16/06/10
  20. 20. Example: “The Art of Flirting” – a film incorporated as an LLP 16/06/10
  21. 21. The actors received “nth’s” of the gross revenues 16/06/10
  22. 22. I got 5%...and the producer the rest 16/06/10
  23. 23. But we needed lights, cameras, pizza, coffee 16/06/10
  24. 24. Two Capital Partners invested £ for 20% of revenues 16/06/10
  25. 25. If there are any 16/06/10
  26. 26. Art of Flirting LLP Custodian Financial Capital (Investors) Viewers % % £ 16/06/10 Human Capital (Actors, Producer, Me)
  27. 27. Everyone was on the same side 16/06/10
  28. 28. Example: Albion Trust...a charity 16/06/10
  29. 29. They provide affordable office space for social enterprises 16/06/10
  30. 30. Due to demand they bought a disused church next door 16/06/10
  31. 31. ...and planned a £4m development 16/06/10
  32. 32. But if they borrow, the rents will be unaffordable 16/06/10
  33. 33. Solution - an Albion Partnership? Custodian Investors Tenants % % £ 16/06/10 Managers
  34. 34. Conventional property development is a transaction model: developer as middleman Developer Property Buyer £ £ Property Buyer £ 16/06/10 Land Owner
  35. 35. Borrow, Buy, Build and B...er Off... 16/06/10
  36. 36. Financed by Equity (ownership) and Debt (from credit institutions) 16/06/10
  37. 37. Community Partnership – a new approach to financing and funding 16/06/10
  38. 38. Financing ...short term, high risk development finance for new assets 16/06/10
  39. 39. Funding ...long term, low risk finance for newly completed or existing assets 16/06/10
  40. 40. Development Financing Land held by/transferred to a Custodian Land Custodian 16/06/10
  41. 41. Land Owner becomes an Investor Land Land Owner Custodian Land Value 16/06/10
  42. 42. Council invests the value of planning permission Land Council Custodian Value of Planning permission 16/06/10
  43. 43. Contractors invest at least the profit margin Land Contractors Custodian Profit Margin 16/06/10
  44. 44. Risk-Takers provide £ to pay Contractors’ agreed costs Land Risk-Takers Custodian £ 16/06/10
  45. 45. Developer invests “Intellectual Capital” of concept and services Land Investors Land-owner, Council, Contractors, Risk Takers Developer Community plus help Custodian Value Value 16/06/10
  46. 46. Result – Community Land Partnership Custodian Investors Occupiers % % Rental 16/06/10 Managers
  47. 47. Investors may keep Units for their own pension... 16/06/10
  48. 48. ...or sell them to Investors or Occupiers who wish to invest in their own homes 16/06/10
  49. 49. Occupiers maintaining the property themselves may receive “Sweat Equity” 16/06/10
  50. 50. Everyone has a stake in the outcome.... 16/06/10
  51. 51. ....with an interest in high quality, energy efficient housing .... 16/06/10
  52. 52. ....because this lowers the cost of occupation over time .... 16/06/10
  53. 53. ....which makes the Rental value higher and makes Units more valuable 16/06/10
  54. 54. So we go from a transaction model... Developer Property Buyer £ £ Property Buyer £ 16/06/10 Land Owner
  55. 55. ...to a service provider model where land is owned by a custodian or steward 16/06/10
  56. 56. Community partnerships are not a magic bullet 16/06/10
  57. 57. Conventional finance requires binding contracts 16/06/10
  58. 58. Partnership finance requires consensual agreement 16/06/10
  59. 59. But there may be no magnetism 16/06/10
  60. 60. Communities may find they have the wrong partner 16/06/10
  61. 61. Sometimes partners fall out 16/06/10
  62. 62. A Community Partnership is not an Organisation 16/06/10
  63. 63. It does not own anything, do anything, employ anyone, or contract with anyone 16/06/10
  64. 64. It is simply a framework within which the stakeholders self organise 16/06/10
  65. 65. ...with a mutual interest in developing land sustainably and affordably. 16/06/10
  66. 66. Rental Pool creates new options for funding and tenure 16/06/10
  67. 67. Co-ownership – of Investor and Occupier 16/06/10
  68. 68. Unitisation – simple but radical funding 16/06/10
  69. 69. Energy Pool: Community Mega Watts
  70. 70. Energy Pool Custodian Investor Community Energy Energy Energy Manager
  71. 71. Manager receives %age of production
  72. 72. Supplier may invest equipment & materials: must invest agreed % profit
  73. 73. Investors provide development Capital by purchasing redeemable Units
  74. 74. Outcome: turbine funded by selling part of Energy Pool of future production. 05/04/10
  75. 75. Nega Watt e nergy savings - the cheapest energy of all – may be simply financed… 09/03/10
  76. 76. … energy loans in KwH may be repaid via utility bills out of energy saved 09/03/10
  77. 77. £5k interest-free energy loan = 100 Units of 1 Mega Watt Hour sold @ £50/MWh 09/03/10
  78. 78. Or 10,000 Units of 10 Kilo Watt Hours @ 50p per Unit 09/03/10
  79. 79. Reduced energy bill paid to power supplier for energy consumed 09/03/10
  80. 80. Energy loan repaid through buying Units from the Pool at the market price 09/03/10
  81. 81. Energy Pool offers a new approach to energy financing
  82. 82. “ If you want to keep a cow healthy, you don’t regulate what comes out of it……”
  83. 83. “…… you regulate what goes in….”
  84. 84. An Energy Pool enables a Carbon currency based upon the intrinsic value of energy…
  85. 85. ..rather than a market in value-less Units of CO2 emissions, imposed by governments …
  86. 86. Thank You 16/06/10

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